Analysts: Eagle Ford drilling will get a lot cheaper by mid-2016

HOUSTON — Pumping a barrel of oil out of the Eagle Ford Shale could get $10 to $15 cheaper by summer 2016 as service companies cut costs and operators tune up their wells, analysts say.

The oil slump hasn’t stopped producers in the South Texas play from getting better at targeting oil-rich rock in lateral sections of their horizontal wells, speeding up their pressure pumping systems and adopting better technologies for bringing wells into production.

Those efforts could help lift wells’ initial production rates by an average 33 percent in the Eagle Ford, even as service companies cut prices for drilling tools, proppant and rigs by an average 16 percent this year, Wood Mackenzie analysts said at a meeting with journalists last week.

Those two factors could bring the Eagle Ford’s breakeven oil price down from $56 to as low as $41 a barrel by June next year, putting millions more barrels within reach for producers. Similar trends are emerging in the Bakken Shale in North Dakota and the Permian Basin in West Texas.

“The death of the unconventional business has been greatly exaggerated,” Wood Mackenzie analyst Cody Rice said. “Operators can still make money in the best portions of the best plays in the lower 48.”

Oil production across the United States, according to the energy research firm, is likely to grow by 675,000 barrels a day this year, about half of the production growth rate in 2014. But even with crude prices at $55 a barrel, the industry can still afford to scoop up nearly 23 billion barrels of U.S. shale oil, and there are 20,000 prime spots in the Eagle Ford that haven’t been drilled yet.

So while the oil slump has curbed drilling activity, the industry is improving how it gooses oil. In the Eagle Ford, producers are fracturing shale rock using 55 percent more proppant and 50 percent more water than they were a few years ago, and they’ve adopted the cement lining of the so-called plug-and-perf system, one method of completing wells.

Oil companies have cut their U.S. shale spending from last year’s $96 billion to $60 billion this year, but a dollar will go a lot further in the oil patch next year if the service companies’ cost cuts hold out, Wood Mackenzie analyst Ben Shattuck said.

More than half of the service cost reductions are expected to come from drilling tools, drilling services, proppants and rigs. They’re expected to cut costs around 15 percent to 20 percent this year around the United States, but some operators are getting discounts as high as 50 percent. For instance, the price of Wisconsin’s white sand used in hydraulic fracturing has been cut in half in places like the Bakken.

“Things will get better on average, but the mileage will vary,” Rice said.

The Wood Mackenzie analyst said all of this is better news for private companies, small to mid-sized public explorers and independent producers than it is for the oil majors and national oil companies. Small to mid-sized firms own roughly 7o percent of the remaining resource the research firm has estimated in the shale plays, and larger firms tend to own acreage on the fringes of the plays.